Asia’s on-demand startups rake in big moolah as Uber, Lyft stumble

A GrabBike motorcycle driver, left, and a Go-Jek motorcycle driver wait for orders in Jakarta, Indonesia, on Sunday, Aug. 13, 2017. Photographer: Dimas Ardian/Bloomberg

Asian startups are giving the gig economy a second wind, even as the troubled sector falters in the U.S. and Europe due to regulatory challenges and investor skepticism.

Asia witnessed four out of five largest fundraising deals by on-demand startups — which rely on freelance workers to provide services from ride-hailing to food delivery — in the 12 months trailing the third quarter of this year, though funding for such companies in general “saw some of the steepest declines” during the period, a recent Goldman Sachs report found.

Leading the pack is Singapore-based ride-hailing platform Grab, which in March announced a $1.46 billion investment from Japan’s SoftBank Group. This capital injection from SoftBank’s Vision Fund brought Grab’s Series H funding to over $4.5 billion.

Also on the list are a $1 billion financing deal in Grab’s Indonesia-based rival, Gojek, led by Google as well as China’s Tencent Holdings and JD.com, and a $1 billion funding round in Indian food delivery platform Swiggy, led by South African internet group Naspers.

“Amid the public listings of Uber [Technologies] and Lyft this year, recent investor focus seems to be on similar companies in Asia,” a group of Goldman analysts led by Heath Terry wrote in the report.

The initial public offerings of Uber and Lyft marked the end of exponential growth for both. Instead, the ride-hailing giants have entered an era marked by public scrutiny of their ability to generate profits.

Market skepticism is reflected in share prices for both companies that languish below the levels of their IPOs, which is deterring private investment in companies with similar business models. The situation is exacerbated by worker strikes and mounting regulatory challenges.

In September, California Gov. Gavin Newsom signed a law that would force companies to treat gig economy workers as employees entitled to benefits, rather than independent contractors, starting Jan. 1. The change would incur $500 million in additional costs for Uber and $290 million for Lyft, according to a Barclays estimate. Last month, Uber also lost its license again to operate in London, one of its most important markets.

But in Asia, particularly Southeast Asia and India, the on-demand economy is less regulated and riding high on such trends as increased internet access as more people own smartphones as well as a favorable workforce demographic.

Both Grab and Gojek harbor superapp ambitions, aiming to become the go-to, one-stop platform for a wide array of services ranging from grocery shopping and ride-hailing to lending, encouraging investors to keep pouring in funds as future growth opportunities seem limitless.

Yet, as they continue to expand and their businesses mature, Asia’s on-demand startups could soon face similar problems plaguing their western counterparts.

In Indonesia, the largest ride-hailing market in Southeast Asia, Grab and Gojek drivers have already staged protests demanding labor rights.

And like Uber and Lyft, some startups in Asia — including Grab and Indian ride-hailing company Ola — may find that SoftBank’s generous funding, once seen only as a positive, could also turn into a burden by inflating valuations to levels that are hard to justify. Large capital injections could also result in startups burning cash unsustainably, muddying their path to profitability.

This article was first published on Nikkei Asian Review.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.